Compensatory pancreatic islet hyperplasia is an adaptive response to increased systemic insulin demand, although factors meditating this response remain poorly understood. Here, we show that a liver-derived secreted protein, Neuregulin1α, promotes compensatory proliferation of pancreatic β cells in type 2 diabetes. Liver Neuregulin1α expression and serum Neuregulin1α levels increase in male mice fed an obesity-inducing diet. Male mice lacking either Neuregulin1 in liver or its receptor, ErbB3, in β cells deteriorate systemic glucose disposal due to impaired β cell expansion with reduced insulin secretion when fed the obesity-inducing diet. Mechanistically, Neuregulin1α activates ERBB2/3-ERK signaling to stimulate β cell proliferation without altering glucose-stimulated insulin secretion potential. In patients with metabolic dysfunction-associated steatotic liver disease (MASLD) and obesity but without type 2 diabetes serum Neuregulin1α levels increase, while in patient with MASLD and type 2 diabetes show markedly reduced levels of Neuregulin1α. These results suggest that Neuregulin1α serves as a hepatokine that can expand functional β cell mass in type 2 diabetes.